AIA Group Ltd (1299 HK)

Company description

AIA Group is the largest independent publicly listed pan-Asian life insurance group, primarily engaged in the provision of insurance, protection, savings, investment, and retirement products and services for both individuals and businesses. It is a market leader in the Asia-Pacific region (ex-Japan) based on life insurance premiums and has operations in 18 markets in Asia-Pacific, including wholly-owned branches and subsidiaries in HK, Thailand, Singapore, Malaysia, China, Korea, Philippines, Australia, Indonesia, Taiwan, Vietnam, New Zealand, Macau, Brunei, Cambodia, 97% owned subsidiary in Sri Lanka, 49% JV in India and representative office in Myanmar.

Agency is the core distribution channel, accounting around 70% of total New Business Value (NBV) while partnerships (eg banks) account for 30%. Highlighting the key competitive advantage of a well-trained agency force which better understands customer needs though long-term relationships, agency NBV rose 28% in 2017. Partnerships encompass more than 60 active national and regional bancassurance relationships, with NBV growth of 27% in 2017. AIA has over 30m individual policies and 16m group insurance members. By regions, HK/China is a key growth region, accounting 42%/22% of NBV in 2017. Premiums are primarily invested in fixed income (84%) and equities (11%) with investment yield averaging 6.9% in 2017. Within fixed income investments, government and government agency bonds account 44% and corporate bonds 55%.

Investment thesis

Double-digit NBV growth in HK/China. HK recorded broad-based strong growth from both agency and partnership channels, suggesting strong demand from both locals and mainland Chinese visitors. China growth appears to have slowed to double digit (1H18: 37%) due to a high base but margin likely improved with favourable product mix change with strong focus on agency channel a key differentiator vs domestic peers. Thailand and other markets including Australia, Korea, Philippines and Taiwan also saw double-digit growth.

Growth to rebound in 4Q on low base. With a low base in Dec-17 (due to accounting period change from Nov to Dec), we expect NBV growth to accelerate into 4Q, led by continued solid HK/China growth and further recovery in Thailand. Despite Oct underperformance vs HSI, we continue to view the stock as as relatively defensive with a proven management track record.

New licences to expand into other China provinces will keep dividend policy increasing.

Conclusion

With strong Asia positioning, AIA is a strong beneficiary of the rise of Asia‘s middle class with higher protection and wealth accumulation needs. Prudent management, strong execution and well-trained agents drive sustainable new business growth and margin expansion from sale of higher margin products.